Dagg v. Cameron Estate
[Indexed as: Dagg v. Cameron Estate]
Ontario Reports
Court of Appeal for Ontario
Doherty, D.M. Brown and B.W. Miller JJ.A.
May 5, 2017
136 O.R. (3d) 1 | 2017 ONCA 366
Case Summary
Family law — Dependants — Dependants' relief — Insurance proceeds
Deceased subject to court orders requiring him to pay spousal and child support and to designate his wife as irrevocable beneficiary of his life insurance policy. Section 72(7) of Succession Law Reform Act excluding from claw back into deceased's estate under s. 72(1)(f) amount of proceeds of insurance policy required to satisfy deceased's court-ordered spousal and child support obligations.
Facts
The Relationship Between Stephen and Anastasia
The appellant Anastasia Cameron and Stephen Cameron married in September 2003. They had two children — Derek, born in 2005, and Meaghan, born in 2007.
In 2010, Stephen took out a $1 million policy of insurance on his life from Canada Life Assurance Co. (the "Policy") in which he named Anastasia as the beneficiary. Stephen was the owner of the Policy.
Stephen and Anastasia separated on January 13, 2012. That September, Anastasia commenced a matrimonial proceeding against Stephen.
Both parties attended a case conference on February 27, 2013 before Rowsell J., who made a consent order requiring Stephen to pay interim monthly child support of $2,230 and interim monthly spousal support of $3,000. Paragraph 15 of the Rowsell order stated: "Stephen shall maintain Anastasia as irrevocable beneficiary on any life insurance policy."
The amounts of interim support were varied by a July 5, 2013 consent order made by McCarthy J. so that Stephen was required to pay monthly child support of $2,000 and monthly spousal support of $2,500. Paragraph 10 of the McCarthy order stated: "All other terms of the order of Justice Rowsell dated February 27, 2013 shall remain in full force and effect."
The Relationship Between Stephen and Evangeline
Stephen had known the respondent Evangeline Dagg before his marriage to Anastasia. He resumed contact with her following his January 2012 separation.
At that time, Evangeline was living in Bellingham, Washington. In July 2012, Stephen moved to British Columbia and frequently travelled to Bellingham to be with Evangeline.
By the time of the McCarthy order in July 2013, Evangeline had told Stephen she was pregnant. James was born in February 2014, about three months after Stephen's death.
Stephen's Last Months
In early November 2013, Stephen was diagnosed with cancer.
On November 11, 2013, Stephen executed a last will and testament and a Canada Life title form. Each document amended the beneficiary designation on the Policy as follows: (i) Anastasia, 10 per cent; (ii) Derek Cameron, 17 per cent; (iii) Meaghan Cameron, 19.4 per cent; and (iv) Evangeline, 53.6 per cent.
Anastasia learned of Stephen's change of beneficiary. While Stephen was in the hospital, Anastasia brought a motion seeking to restore her designation as sole beneficiary under the Policy. In her affidavit in support of the motion, Anastasia deposed that Stephen was close to $18,000 in arrears on his support obligations. She also stated:
In or around 2010, while the parties were still together, I started looking for life insurance options. We had a policy in place but the face value was not for very much. I decided that, to ensure both the children and I were looked after in case anything happened to Mr. Cameron, we should obtain a policy with a much higher value.
Attached as Exhibit "A" is the policy we ended up purchasing . . .
For a long time, I maintained this policy in force, by paying the premiums and ensuring it was kept current. This policy was specifically meant for me and the children, not for anyone else. It was meant to secure our financial future in the event Mr. Cameron could not provide financially due to death.
Note: The agreed statement of facts filed by the parties at the trial did not stipulate Anastasia had paid the premiums. Nor did it include Anastasia's evidence about the Policy's purpose.
Nelson J. heard Anastasia's motion on November 20, 2013. He found that Stephen was in breach of the Rowsell order. His order provided, in part:
The Canada Life Assurance Company is directed to amend the beneficiary designation nunc pro tunc to the date of any recent beneficiary change . . . for insurance on the life of the Respondent, Stephen D. Cameron, such that the Applicant, Kimberley Anastasia Cameron aka Kimberley Anastasia Smith . . . is named sole (100%) and irrevocable beneficiary on said policy.
Stephen D. Cameron shall maintain the above policy of insurance in force and shall not allow it to lapse.
Canada Life made the ordered change, effective November 20, 2013.
Stephen died three days later, on November 23, 2013, at the age of 48. He left an insolvent estate.
Evangeline's SLRA Application
In March 2014, Evangeline applied under Part V of the SLRA for dependant's relief. Included in her application was a request for a declaration that s. 72 of the SLRA applied to the $1 million in proceeds from the Policy, "the value of which form part of the Estate and is available to satisfy the claim for support".
The application ultimately proceeded as a trial of issues. Anastasia asserted a counterclaim seeking (i) judgment of $1 million against Stephen's estate "pursuant to both the contracts underlying the Rowsell and McCarthy Orders, as well as the Orders themselves"; (ii) a declaration the Policy not form part of Stephen's net estate under s. 72 of the SLRA; or alternatively (iii) a declaration that Anastasia was a creditor of the estate with respect to the Policy and therefore its proceeds should not form part of Stephen's estate by operation of s. 72(7) of the SLRA.
The parties agreed that Anastasia, Derek, Meaghan and James were dependants of Stephen's estate and he did not make adequate provision for their support. Whether Evangeline was a dependant of his estate was an issue for trial.
No witnesses were called at the trial. It proceeded upon the basis of an agreed statement of facts and a joint compendium of documents.
Lower Court Decisions
The Trial Decision
The trial judge determined Evangeline was a "spouse" of Stephen within the meaning of s. 57 of the SLRA; he could not determine whether Evangeline was a dependant given the state of the record.
The trial judge concluded the Policy formed part of Stephen's estate, finding that Stephen was the owner of the Policy at the time of his death. He went on to find that since Anastasia "had no security interest in the life insurance policy, she cannot be characterized as a 'creditor' within the meaning of section 72(7) of the SLRA".
The Decision of the Divisional Court
The Divisional Court dismissed Anastasia's appeal, concluding the trial judge correctly determined Stephen owned the Policy. The court went on to hold that Anastasia's irrevocable beneficiary designation did not give her "creditor rights" in a transaction within the meaning of s. 72(7) of the SLRA notwithstanding the consent orders because she had not demonstrated she had a security interest in the Policy.
Positions of the Parties on Appeal
Anastasia's position is that the entire $1 million in life insurance proceeds belong to her, irrespective of her actual entitlement to support under the Rowsell and McCarthy orders at the time of Stephen's death. She argues, in effect, that the beneficiary designation term contained in the Rowsell order ousts the operation of the dependants' support provisions in Part V of the SLRA, in particular s. 72(1)(f).
Evangeline argues that a proper interpretation of s. 72(7) of the SLRA would see Anastasia receive an amount of the Policy's proceeds sufficient to satisfy Stephen's support obligations under the Rowsell and McCarthy orders, subject to the ability of his estate trustee to move to reduce the amount of those support obligations.
The Mootness Issue
After Anastasia was granted leave to appeal from the Divisional Court order, the parties settled this appeal. Nonetheless, the parties urge this court to allow the appeal to proceed, arguing the Divisional Court's decision has broad implications for family and estates law in Ontario. At the hearing, the court reserved its decision on whether to deal with the appeal notwithstanding its mootness.
The General Principles
Where, as here, the dispute between the parties has disappeared, the court still retains the discretion to proceed to hear the merits of the appeal: Borowski v. Canada (Attorney General), [1989] 1 S.C.R. 342, at p. 353 S.C.R.
The exercise of that discretion is guided by a consideration of the presence or absence of the three rationales underpinning the mootness doctrine: (i) whether the issues can be well and fully argued by parties who have a stake in the outcome; (ii) the concern for judicial economy; and (iii) the need for the court to remain alive to the proper limits of its law-making function in order to avoid intrusions into the role of the legislative branch: Borowski, at pp. 358-63 S.C.R.; Ontario (Provincial Police) v. Thunder Bay (City) Police Service, 2015 ONCA 722, 330 C.C.C. (3d) 149, at paras. 31-32. The interplay amongst the three rationales was described in Borowski, at p. 363 S.C.R.:
In exercising its discretion in an appeal which is moot, the Court should consider the extent to which each of the three basic rationales for enforcement of the mootness doctrine is present. This is not to suggest that it is a mechanical process. The principles identified above may not all support the same conclusion. The presence of one or two of the factors may be overborne by the absence of the third, and vice versa.
Application of the Principles
Applying these criteria to this appeal, the court had no concern about the absence of an adversarial relationship. Counsel for both parties argued the appeal with the same vigour as if the matter were not moot.
Regarding the factor of judicial economy, the court was persuaded that although this is a case capable of repetition, it is one that could be evasive of review by this court given the costly three-stage appeal process involved: Borowski, at pp. 360, 364 S.C.R.; Thunder Bay, at para. 34.
As well, there exists a strong public interest in the resolution of the legal issues raised by this appeal: Tamil Co-operative Homes Inc. v. Arulappah (2000), 49 O.R. (3d) 566, at paras. 25 and 26. The parties point to the long-standing practice in this province of including in separation agreements and court spousal and child support orders provisions requiring a payor spouse to maintain life insurance coverage and name the recipient spouse and children as beneficiaries under the policy. The effect of the Divisional Court's decision is to expose such life insurance proceeds to competing claims under the SLRA from other children and former or subsequent spouses of the deceased payor. The implications of the Divisional Court decision will be felt well beyond the boundaries of this case.
Finally, the parties are not asking the court to decide an abstract question and thereby intrude improperly into the legislative sphere: Borowski, at p. 365 S.C.R. The issues raised by the parties are grounded in the specific facts in the record. The appeal was fully argued by interested parties based on a complete record, which puts the court in a position to make a fully informed decision on the issues of public importance raised by the appeals.
For these reasons, the court exercised its discretion to determine the issues raised in the appeal despite its mootness.
Structure of the Analysis
As mentioned, this appeal raises a single issue: where a support payor owns a life insurance policy and has been required by court order to name the spousal or child support recipient as the irrevocable beneficiary of the policy, upon the payor's death what rights does the support recipient have to the policy's proceeds in the face of a competing claim by another dependant of the deceased brought under Part V of the SLRA? More specifically, what rights does the support recipient have to the policy's proceeds under s. 72(7) of the SLRA as a creditor "of the deceased in any transaction with respect to which a creditor has rights"?
The modern approach to statutory interpretation requires the court to read the words of a provision in their entire context and in their grammatical and ordinary sense, harmoniously with the scheme of the Act, the object of the Act and the intention of Parliament: Bell ExpressVu Limited Partnership v. Rex, [2002] 2 S.C.R. 559, 2002 SCC 42, at para. 26. Since it is the combined operation of ss. 72(1)(f) and 72(7) of the SLRA that lies at the heart of this appeal, the analysis begins with an examination of those two sections in the context of the scheme of the SLRA as a whole. Next, the court reviews the operation of the provisions of the Family Law Act and Divorce Act that enable a court to deal with a payor's insurance policies when making spousal and child support orders. The court then reviews existing case law on s. 72 of the SLRA, before applying all of these considerations to the facts of this case.
The Statutory Scheme
Where a deceased person has not made adequate provision for the proper support of his dependants, Part V of the SLRA enables a dependant to apply to court for an order that "such provision as it considers adequate be made out of the estate of the deceased for the proper support of the dependants": s. 58(1). In addition to identifying who qualifies as a "dependant" (s. 57(1)) and how a court should determine the amount and duration of any dependant's support order (s. 62), Part V also stipulates that a dependant can look beyond the assets of the deceased's immediate estate to secure any support order she might obtain.
Section 72 of the SLRA creates a mechanism by which certain assets dealt with by a deceased before his death can be clawed back into his estate and be made available "to be charged for payment" of a dependant's support order. Section 72(1) states:
72(1) Subject to section 71, for the purpose of this Part, the capital value of the following transactions effected by a deceased before his or her death, whether benefitting his or her dependant or any other person, shall be included as testamentary dispositions as of the date of the death of the deceased and shall be deemed to be part of his or her net estate for purposes of ascertaining the value of his or her estate, and being available to be charged for payment by an order under clause 63(2)(f),
(a) gifts mortis causa;
(b) money deposited, together with interest thereon, in an account in the name of the deceased in trust for another or others with any bank, savings office, credit union or trust corporation, and remaining on deposit at the date of the death of the deceased;
(c) money deposited, together with interest thereon, in an account in the name of the deceased and another person or persons and payable on death under the terms of the deposit or by operation of law to the survivor or survivors of those persons with any bank, savings office, credit union or trust corporation, and remaining on deposit at the date of the death of the deceased;
(d) any disposition of property made by a deceased whereby property is held at the date of his or her death by the deceased and another as joint tenants;
(e) any disposition of property made by the deceased in trust or otherwise, to the extent that the deceased at the date of his or her death retained, either alone or in conjunction with another person or persons by the express provisions of the disposing instrument, a power to revoke such disposition, or a power to consume, invoke or dispose of the principal thereof, but the provisions of this clause do not affect the right of any income beneficiary to the income accrued and undistributed at the date of the death of the deceased;
(f) any amount payable under a policy of insurance effected on the life of the deceased and owned by him or her;
(f.1) any amount payable on the death of the deceased under a policy of group insurance; and
(g) any amount payable under a designation of beneficiary under Part III.
Commentators have described s. 72 as "an extremely powerful provision" containing "Draconian measures": Robert M. Halpern, Property Rights and Obligations under Ontario Family Law (Toronto: Canada Law Book, 2012), at p. 161; A.H. Oosterhoff, "Reform of the Law of Succession in Ontario" (1976), 3 E. & T.Q. 191-285, at p. 277. The section's reach is broad. Professor Oosterhoff observed, at pp. 227-28, that "[m]any of the [transactions] . . . may have been made for very excellent reasons not at all related to an attempt to denude oneself of one's estate during one's lifetime for the purpose of avoiding one's obligations to one's dependants".
The facially broad scope of s. 72(1) is subject to several statutory limitations:
(i) any dependant claiming under Part V of the SLRA bears the burden of establishing that the funds or property, or any portion thereof, belonged to the deceased: s. 72(3);
(ii) the capital value of the transactions referred to in s. 72(1)(b), (c) and (d) are included in the net estate of the deceased only "to the extent that the funds on deposit were the property of the deceased immediately before the deposit or the consideration for the property held as joint tenants was furnished by the deceased": s. 72(2); and
(iii) s. 71 provides that "[w]here a deceased, (a) has, in his or her lifetime, in good faith and for valuable consideration, entered into a contract to devise or bequeath any property; and (b) has by his or her will devised or bequeathed that property in accordance with the provisions of the contract, the property is not liable to the provisions of an order made under this Part except to the extent that the value of the property in the opinion of the court exceeds the consideration therefor".
Finally, there is s. 72(7), which is central to this appeal. It states: "This section does not affect the rights of creditors of the deceased in any transaction with respect to which a creditor has rights."
The Purpose and Effect of s. 72 of the SLRA
The Section's Legislative History
What mischief is s. 72 designed to address? The section traces its origins to discussions in the 1960s and 1970s by the Conference of Commissioners on Uniformity of Legislation in Canada (the "conference"). The conference developed model uniform dependant's relief legislation.
The proceedings of the conference's 48th annual meeting in 1966 identified a problem with the then existing dependant's relief statutes, at p. 103: "[U]nder this legislation there is no obstacle to a testator denuding himself of all or the bulk of his assets so that there is at his death no estate out of which an order made under [dependant's relief legislation] can be satisfied." A solution to this problem lay in recapturing all or part of the testator's estate disposed of by pre-death transactions. To that end, the conference proposed legislative language similar to s. 72(1) of the SLRA.
The 1967 proceedings of the conference's 49th annual meeting observed, at p. 219:
It seems clear that the principle of recapturing assets and deeming them to be part of the estate of the testator at his death should be limited to those assets in which the testator had an interest or over which he exercised control up to the moment of his death. This would eliminate all transactions involving bona fide purchasers and the donees of absolute gifts.
The 1967 proceedings recommended the uniform Act be amended to include sections similar to those now found in s. 72(1) to (6) of the SLRA. Also recommended was the inclusion of language similar to that in s. 72(7).
A draft model Family Relief Act was presented at the 1969 conference. The following year, the commissioners considered a report on the draft model Act prepared by the Alberta Institute of Law Research and Reform. The report described mechanisms such as those now found in SLRA s. 72 as ones designed to "prevent evasions". It identified the problem in the following terms, at p. 127:
It is possible for a husband to circumvent the policy of the Act by getting rid of his assets in his lifetime . . . This can be done either by outright disposition (including irrevocable trust) or by various devices short of outright disposition whereby the husband retains control of the assets but yet has dealt with them in such a way that they are not part of his estate at death.
In 1972, the conference tabled a revised model Act, which it called the Dependant's Relief Act. The precise language now found in s. 72(7) of the SLRA appeared in this draft, unfortunately without any commentary. The 1973 conference amended that draft, and at the 1974 conference the commissioners recommended the amended draft for enactment.
The language of the uniform Act found its way into Bill 60, An Act to Reform the Law respecting Succession to the Estates of Deceased Persons, which was assented to on November 4, 1977 (S.O. 1977, c. 40).
Little detailed debate of the SLRA was undertaken by the legislature, which seemed content to adopt the work of the commissioners. However, during the debate in committee of the whole House on Bill 60 on November 1, 1977, MPP Lawlor made the following comments on what is now s. 72:
This section is worth its weight in gold. For years lawyers, in their peculiar ingenuity, have set up all kinds of devices whereby to frustrate the operations of the Devolution of Estates Act and the Dependants Relief Act, but particularly the Devolution of Estates Act, as to cutting people out to whom they owe obligations during their lifetime. They set up trusts and then they make designations under pension plans, and they make designations under the Insurance Act -- there's a whole host of measures which we, in our backward way, always plumed ourselves upon knowing about and on occasion using.
It has now got through to the Law Reform Commission and to the Attorney General's department that these dreadful things were going on out there, and the door is being closed on a host of these machinations to defeat people who would otherwise have a claim upon an estate. I commend the Attorney General on this section.
Judicial Consideration of s. 72's Purpose
The most frequently cited judicial statements about the purpose of s. 72 of the SLRA are those found in Modopoulos v. Breen Estate, [1996] O.J. No. 2738, 15 E.T.R. (2d) 128 (Gen. Div.) and Moores v. Hughes (1981), 37 O.R. (2d) 785, [1981] O.J. No. 3232 (H.C.J.). The court in Modopoulos considered the remedial intent of the legislation as preventing "a testator from frustrating an outstanding support obligation by transferring assets out of his own name": at para. 24. In Moores, Robins J., as he then was, stated, at p. 789 O.R.:
Manifestly, the section was intended to ensure that the maintenance of a dependant is not jeopardized by arrangements made, intentionally or otherwise, by a person obligated to provide support in the eventuality of his death. It is designed to alleviate the hardship that can be visited on a dependant by causing money or property to pass directly to a beneficiary (donee or joint tenant) and not as part of the estate.
As the court in Moores points out, s. 72(1) captures transactions even if they are not made by a testator with the specific intention of evading obligations to support dependants. However, the legislative history of s. 72 certainly identifies preventing the evasion of support obligations on death as the mischief the section seeks to address. Or, as this court described the section's purpose in Madore-Ogilvie (Litigation guardian of) v. Ogilvie Estate (2008), 88 O.R. (3d) 481, [2008] O.J. No. 170, 2008 ONCA 39, at para. 39, it operates to prevent arrangements that "jeopardise the maintenance of the deceased's dependants".
The Operation of s. 72(7) of the SLRA
Unfortunately, the legislative record sheds little light on the intended practical operation of the creditor's rights language contained in s. 72(7) of the SLRA. Academic and practitioner commentators also offer little assistance. Professor Oosterhoff observes simply that "the rights of creditors in such transactions are also expressly preserved": Succession Law Reform in Ontario (Toronto: Canada Law Book Limited, 1979), at p. 119. See, also, Rodney Hull, Q.C., "Dependants Relief" in LSUC, The Succession Law Reform Act, 1977 (Toronto: LSUC, February/March 1978), at p. 22.
Insurance Policies and Support Orders Under the Family Law Act and Divorce Act
The Family Law Reform Act, S.O. 1978, c. 2 ("FLRA") was enacted on March 16, 1978, four months after the SLRA came into force. Section 19(1)(j) of the FLRA provided that on an application for support, a court may order that "a spouse who has a policy of life insurance as defined in Part V of The Insurance Act designate the other spouse or a child as the beneficiary irrevocably". Section 19(1)(k) also empowered a court to order "the securing of payment under the order, by a charge on property or otherwise".
Those provisions have been carried forward, in slightly modified form, as s. 34(1)(i) and (k) of the Family Law Act (the "FLA"):
34(1) In an application under section 33, the court may make an interim or final order,
(i) requiring that a spouse who has a policy of life insurance as defined under the Insurance Act designate the other spouse or a child as the beneficiary irrevocably;
(k) requiring the securing of payment under the order, by a charge on property or otherwise.
The jurisprudence commonly treats the purpose of a beneficiary-designation order under s. 34(1)(i) of the FLA as securing the support obligation of a spouse in the event of his or her death: Smylie v. Smylie, [2006] O.J. No. 4716, 2006 CarswellOnt 7456 (S.C.J.), at para. 77; Thomas v. Thomas, [2003] O.J. No. 5401, [2003] O.T.C. 1149 (S.C.J.), at para. 96.
As to s. 34(1)(k), in Katz v. Katz, [2014] O.J. No. 3909, 2014 ONCA 606, 377 D.L.R. (4th) 264, this court held, at para. 69, that the subsection "is broad enough to permit a court to order a spouse to obtain an insurance policy to secure payment of the order following the payor spouse's death. The concluding words 'or otherwise' in s. 34(1)(k) afford the court broad scope for securing the payment of a support order." The court continued, at para. 70:
Because a support payor's estate is bound by a support order following the payor's death, the court making a support order is entitled to secure the payments to be made in the event of the payor's death by requiring the payor to obtain and maintain life insurance for a specified beneficiary while the support order is in force and to give directions concerning the extent to which the payout of the insurance proceeds will discharge the support obligation.
The Divorce Act does not contain provisions similar to those found in the FLA. However, the court is given broad discretion under ss. 15.1 and 15.2 of the Divorce Act, in relation to both child and spousal support, to include such terms, conditions or restrictions in the order as it thinks fit and just, as set out below:
15.1(4) The court may make a [final or interim child support order] for a definite or indefinite period or until a specified event occurs, and may impose terms, conditions or restrictions in connection with the order or interim order as it thinks fit and just.
15.2(3) The court may make a [final or interim spousal support order] for a definite or indefinite period or until a specified event occurs, and may impose terms, conditions or restrictions in connection with the order as it thinks fit and just.
In Linton v. Linton (1990), 1 O.R. (3d) 1, [1990] O.J. No. 2267 (C.A.), this court remarked, at p. 32 O.R., on the practice of ordering a payor to designate a support recipient as the beneficiary of a life insurance policy:
I note that s. 34(4) of the Family Law Act, 1986 provides that a support order is binding on the payor's estate, if no order to the contrary is made. The practice of the family law bar, with which I am familiar, in both Family Law Act, 1986 and Divorce Act matters in which support is in issue, and in matters which are settled, is to provide for the continued payment of support by the estate of the payer, or the payment of a capital sum, usually through life insurance, as a substitute. It can thus be said that the approach taken by the trial judge on this issue [namely, to direct that the support obligation be binding on the husband's estate] accords with both the Family Law Act, 1986 and prevailing practice.
Similarly, in Katz this court observed that under ss. 15.1 and 15.2 of the Divorce Act, the court is given broad discretion to include terms, conditions or restrictions in the order or interim order as it thinks fit and just and, as part of that discretionary power, a court may impose terms aimed at securing payment of a support order: at para. 71. The court continued, at paras. 73-74:
In my view, therefore, the same power that exists under the Family Law Act to order a spouse to obtain insurance to secure payment of support payments that are binding on the payor's estate also exists under the Divorce Act.
That said, where there is no existing policy in place, a court should proceed carefully in requiring a payor spouse to obtain insurance.
In Muggah v. Nova Scotia (Workers' Compensation Appeals Tribunal), [2015] N.S.J. No. 255, 2015 NSCA 63, 387 D.L.R. (4th) 334, the Nova Scotia Court of Appeal observed, at para. 59, that a life insurance provision is a common term of corollary relief judgments after divorce. In support of that observation, the court cited Julien D. Payne and Marilyn A. Payne, Canadian Family Law, 5th ed. (Toronto: Irwin Law Inc., 2013), at p. 222:
For the purpose of providing security for arrears and future payments of spousal support, the court may exercise its discretionary statutory jurisdiction to order the obligor to designate the obligee as the beneficiary under the obligor's life insurance policy. Orders of this nature have begun to be granted on a routine basis, even though no specific mention of life insurance policies is found in the provisions of sections 15.2(1), (2), and (3), and 17(3) of the Divorce Act, which relate to the court's jurisdiction to order security for spousal support payments.
Accordingly, whether operating under the FLA or the Divorce Act, a court can order a support payor to designate the support recipient as the irrevocable beneficiary of a life insurance policy to ensure funds exist at the time of the payor's death sufficient to satisfy his support obligations specified in the support order.
Application to the Present Case
There is no dispute between the parties that the Policy is a "transaction effected by the deceased before his . . . death" within the meaning of s. 72(1) of the SLRA. As a result, the proceeds are deemed to form part of Stephen's net estate. What is in dispute is the extent of Anastasia's rights as a creditor of the deceased under s. 72(7) of the SLRA to the Policy's proceeds.
Whether Anastasia is a Creditor of the Deceased for the Purposes of s. 72(7) of the SLRA
Courts have recognized that the obligation to make a support payment under the Divorce Act or the FLA creates a debtor-creditor relationship: Bukvic v. Bukvic (2007), 86 O.R. (3d) 297, [2007] O.J. No. 1637 (S.C.J.), at para. 79. As well, ss. 121(4) and 178(1)(b) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 recognize family support claims as debts provable as claims in bankruptcy.
Depending on the terms and duration of the support order, the estate of a support payor may be liable for both past and future support obligations calculated in accordance with the support orders in place at the time of the payor's death — that is, both any arrears of support payments and the present value of future support payments. However, the legal basis for such claims by support recipients differs according to the act under which the support order is made.
An order for child or spousal support made under the FLA binds the estate of the person having the support obligation, unless the order provides otherwise: s. 34(4). The personal representative of a support payor can apply to vary a support order: s. 37(1)(c).
As to the position of the recipient of spousal support under the Divorce Act, in Katz this court stated, at para. 72:
There is, however, no provision in the Divorce Act similar to s. 34(4) of the Family Law Act, making a support order binding on a payor's estate. On the contrary, it has long been held that a support or maintenance obligation under divorce legislation ends when the payor dies unless there is a specific agreement to the contrary . . . There are conflicting authorities across Canada concerning whether a court may order that support payments under divorce legislation are binding on the payor's estate . . . Nonetheless, the prevailing view in Ontario has long been that the court has that power, but that explicit language in the order is required to make that intention clear.
In the courts below, Evangeline conceded Anastasia is a general, unsecured creditor of Stephen's estate. However, both the trial judge and the Divisional Court held Anastasia was not a creditor of Stephen for the purposes of s. 72(7) of the SLRA.
Anastasia submits the courts below erred in interpreting s. 72(7) of the SLRA as applying only to secured creditors. She points out the subsection speaks of "creditors", not of "secured creditors". She argues the courts below committed an error of law by ignoring that plain language of the statute. Anastasia contends her claim to the Policy's proceeds as an unsecured creditor is sufficient to qualify her for the protection of s. 72(7).
While Evangeline contends s. 72(7) is oriented towards protecting the conventional security interests of third party creditors, in her factum she acknowledges that Anastasia's support claim should be paid out of the Policy's proceeds. However, Evangeline argues s. 72(7) should not be interpreted to permit Anastasia to retain any portion of the Policy's proceeds in excess of the amount of her support claim.
The court accepts Anastasia's submission that the Divisional Court erred in holding she did not fall within s. 72(7) of the SLRA unless she was a secured creditor with a security interest in the Policy. Such an interpretation runs counter to the plain language of s. 72(7), which extends its reach to any creditor of the deceased "in any transaction with respect to which a creditor has rights". Nor does any other language in Part V of the SLRA suggest that s. 72(7) applies only to claims by secured creditors. On the contrary, the statutory language clearly indicates s. 72(7) makes its protection available to any person who is a creditor of the deceased in respect of a transaction identified in s. 72(1) with respect to which the creditor has rights.
One such transaction is "a policy of insurance effected on the life of the deceased and owned by him", such as the Policy. Accordingly, in the present case the proper question to ask is: what rights as a creditor of Stephen did Anastasia have in respect of the Policy?
The Nature and Extent of Anastasia's Creditor Rights Under s. 72(7) of the SLRA
The court concludes that where, at the time of his death, a spousal or child support payor owns a policy of insurance that is subject to a court order requiring the designation of the support recipient as the irrevocable beneficiary of the policy, s. 72(7) protects from the claw back of s. 72(1) that part of a policy's proceeds needed to satisfy the deceased's obligations to the spousal and child support recipients, calculated in accordance with the support orders in place at the time of his death.
Under both the FLA and the Divorce Act, a court can secure the payment of support obligations by formally granting a charge against property. However, the jurisprudence discloses that the more common practice is for a court to order a support payor to designate the support recipient as the irrevocable beneficiary under a life insurance policy. While colloquially such an order is described as one that "secures" payment of the support obligations in the event of the payor's death, it would be more accurate to say that such an order makes available a pool of money — the proceeds of the life insurance policy — to satisfy the support payor's obligations calculated in accordance with the support orders in place at the time of his death.
Where such a beneficiary-designation order is made ancillary to a spousal or child support order, the support recipient is a creditor of the deceased in a "transaction with respect to which a creditor has rights". The transaction is the purchase or maintenance by the deceased of a policy of insurance on his life, which stands available, by operation of court orders, to satisfy the deceased's spousal or child support obligations on his death by designating the support recipient as the beneficiary of the policy. For the purposes of s. 72(7), the support recipient is a creditor of the deceased because, as the court-ordered designated beneficiary under the policy of insurance, the support recipient has the legal right to look to the policy's proceeds to satisfy the deceased's support obligations calculated as at the time of his death. Those obligations can include (i) any existing arrears; and (ii) the present value of any future support obligations, calculated by reference to the terms and duration of the support order in place at the time of his death.
Such an interpretation of s. 72(7) is faithful to the scheme and object of Part V of the SLRA, which places limits on the reach of the claw backs contained in s. 72(1). It also harmonizes the operation of Part V of the SLRA with the insurance beneficiary-designation powers granted to courts under family law legislation: Ruth Sullivan, Sullivan on the Construction of Statutes, 6th ed. (Toronto: LexisNexis, 2014), at 11.2–11.5. The interpretation recognizes that although a policy of insurance ordered to stand available to satisfy a deceased's family law support obligations may fall within the language of s. 72(1)(f), it is not a transaction by the deceased designed to avoid his responsibilities to his dependants. On the contrary, it is a transaction intended to provide for family law support-order dependants. By "clawing back" into the deceased's net estate only that portion of the proceeds of a life insurance policy in excess of the amount required to satisfy the deceased's family law support obligations, funds may be made available to support his other dependants while, at the same time, discharging his existing family law support obligations.
An interpretation of s. 72(7) that limits the claw back to amounts in excess of existing legal obligations to third parties echoes the approach taken to creditor's rights elsewhere in Part V of the SLRA. Like s. 72(7), s. 71 of the SLRA places a limit on the property of the deceased made available to satisfy a Part V dependant's support order. Section 71 states:
71. Where a deceased,
(a) has, in his or her lifetime, in good faith and for valuable consideration, entered into a contract to devise or bequeath any property; and
(b) has by his or her will devised or bequeathed that property in accordance with the provisions of the contract,
the property is not liable to the provisions of an order made under this Part except to the extent that the value of the property in the opinion of the court exceeds the consideration therefor.
Like s. 72(7), s. 71 protects the rights of a certain class of estate creditor in the face of claims made under Part V of the SLRA. In the case of a party to a contract to devise property, the creditor's rights are protected to the extent of the consideration given prior to the deceased's death.
From the interpretation of s. 72(7) adopted by the court, it follows that the court does not accept the appellant's submission that where a court order uses language, such as that contained in the Rowsell order, which requires a support payor to maintain the support recipient as a policy's irrevocable beneficiary, the full amount of the policy's proceeds is automatically excluded from the "claw back" in s. 72(1) of the SLRA. The court reaches this conclusion for several reasons.
First, under the interpretation of s. 72(7) that has been adopted, the support recipient obtains the benefit of the protection ordered by the court — the availability of a pool of funds to satisfy the payor's support obligations in the event of his death.
Second, Anastasia's rights as a creditor of the deceased in respect of the Policy for the purposes of s. 72(7) flow from court orders. Those rights can be no greater than what the courts could confer under such orders. Under the FLA and Divorce Act, courts only have the jurisdiction to order life insurance beneficiary designations to the extent needed to satisfy support obligations. Such orders can provide no greater protection in the face of a competing claim to the policy's proceeds by a claimant under Part V of the SLRA. Should parties intend a life insurance policy to operate as a kind of "stand alone" benefit upon the payor's death, not linked to his obligation to pay child or spousal support, it is open to them to strike such a bargain and memorialize it in a separation agreement: Turner v. DiDonato (2009), 95 O.R. (3d) 147, [2009] O.J. No. 1113, 2009 ONCA 235, at para. 38.
Finally, it is always open to parties to matrimonial disputes to structure their affairs to avoid the effect of s. 72(1) of the SLRA. In appropriate cases, parties can request a court to include in support orders provisions dealing with the effect of the payor's death on support obligations then outstanding or due: Decaen v. Decaen, [2013] O.J. No. 1549, 2013 ONCA 218, 303 O.A.C. 261, at paras. 70, 77. Further, as the Divisional Court stated, at para. 19 of its reasons:
Spouses who wish to exclude life insurance proceeds from the reach of the SLRA can do so by transferring ownership to the dependent spouse or to a trustee. They can also transfer the ownership into their joint names with a right of survivorship. On the death of one of them, the ownership would then either revert to the life insured or vest in the survivor beneficiary. In the latter circumstance, the policy proceeds would be excluded from SLRA claims because the policy would be owned by the beneficiary, not the deceased.
As this court held in Ogilvie Estate, at para. 27, s. 72(1)(f) of the SLRA does not capture a jointly owned policy of insurance.
Consequently, should Stephen's support obligations to Anastasia and their children, calculated by reference to the support order in effect at the time of his death, equal or exceed the Policy's proceeds, Anastasia's rights as a creditor under s. 72(7) would see the entire proceeds paid to her. If the support obligations are less than the Policy's proceeds, Anastasia would receive the amount needed to satisfy Stephen's support obligations, and the balance would be available as part of Stephen's net estate to satisfy any support granted to Evangeline and James under Part V of the SLRA.
Finally, the respondent submits it should be open to a support payor's estate to move after the payor's death to vary the amount of the support orders made under family law legislation for the purpose of calculating the rights of a support recipient under s. 72(7) of the SLRA. It is not necessary to address that submission. That issue is not relevant to the question of the proper interpretation of s. 72(7) of the SLRA. As well, the parties have settled their dispute, so the prospect of an application to vary a support order does not arise on the facts of this case.
Summary
In the present case, the Rowsell and McCarthy orders operated to make the proceeds of the Policy available to Anastasia, as a spousal and child support recipient and the Policy's designated beneficiary, to satisfy the support obligations of Stephen existing at, and calculated in accordance with the terms of the support orders in place at, the time of his death. Anastasia thereby became a creditor of Stephen for the purposes of s. 72(7) of the SLRA with the right to look to the Policy's proceeds to satisfy those support obligations. Section 72(7) operates to remove from the claw back of s. 72(1) the amount of the Policy's proceeds required to satisfy those support obligations of Stephen to Anastasia and their children.
Disposition
For the reasons set out above, the appeal is allowed. An order is granted declaring that Anastasia is entitled to payment of the Policy's proceeds to the extent of Stephen's support obligations, past and future, existing at the time of his death, and calculated in accordance with the terms and duration of the support orders in effect at the date of his death.
The parties agree there should be no costs of this appeal.
Appeal allowed.
Note
Section 121(4) of the Bankruptcy and Insolvency Act provides: A claim in respect of a debt or liability referred to in paragraph 178(1)(b) or (c) payable under an order or agreement made before the date of the initial bankruptcy event in respect of the bankrupt and at a time when the spouse, former spouse, former common-law partner or child was living apart from the bankrupt, whether the order or agreement provides for periodic amounts or lump sum amounts, is a claim provable under this Act.